Little Excitement Around Lightspeed Commerce Inc.'s (TSE:LSPD) Revenues As Shares Take 27% Pounding

To the annoyance of some shareholders, Lightspeed Commerce Inc. (TSE:LSPD) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

After such a large drop in price, Lightspeed Commerce may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 2.9x and even P/S higher than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Lightspeed Commerce

How Lightspeed Commerce Has Been Performing

Recent times have been advantageous for Lightspeed Commerce as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Lightspeed Commerce's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Lightspeed Commerce's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 118% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 14% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 421% each year growth forecast for the broader industry.

With this information, we can see why Lightspeed Commerce is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Lightspeed Commerce's P/S?

Lightspeed Commerce's recently weak share price has pulled its P/S back below other Software companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Lightspeed Commerce's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Lightspeed Commerce that you need to be mindful of.

If these risks are making you reconsider your opinion on Lightspeed Commerce, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.